This article contains information about products/services offered by us as well as those that we do not offer.

Author: Internal Marketing Department

Payday loans can be useful at times

Before I begin I should clarify the title of this article 'Payday Loans for Bad Credit'. There are many that would believe that anyone advertising these implied that anyone who applies for a loan will get it. While this may once have been the case when credit checking and affordability analysis were only done by mainstream lenders in the last few years NOTHING could be further from the truth. Any regulated Payday Lender must ensure that they carry out adequate affordability and creditworthiness assessment on applicants. On this bases no loan is a certainty, even those offered for bad credit. What this means is that lenders will take a balanced view of your credit history, and just because you have had some poor credit history in the past, them may still lend. This may involve looking at more recent 'good' points that show a reformed character, or even discounting items such a Communication Supplier defaults, where it is obvious that it was unfair that the provider allowed you to run up a £2000 bill while you were on holiday without capping it. Of course affordability to repay the loan would always be a key factor...With that cleared up lest get on with the article.

The condition of payday loans industry today is somewhat controversial, owing to its high interest rates and charges. Until recent years to a large degree this view was justified. The regulation for Payday Loans was based around the 1974 Consumer Credit Act, and although this had undergone several amendments, the latest being the European Consumer Credit Directive, it still never really focused on specific regulations for these type of short term loans, particularly those seeking payday loans for bad credit.

One of the biggest changes the Financial Conduct Authority made when taking over regulation in April 2014 was to create a separate classification of these types of loan, and so the High Cost Short Term Loan was born. Before the FCA stepped in lenders could charge whatever interest rate they wished to, including adding many different charges for managing accounts if they fell into arrears. Many payday lenders used to mislead borrowers through false advertisements and then used to harass them for repayments, often rolling them over multiple times if they could not pay in full. All these were only a few of the many poor practices involved in the payday lending industry. Many industry critics raised their voices against these ill-doings and the detriment that they were causing to customers. The FCA concluded that it was indeed very crucial to make strict rules around these payday lenders to stop such malpractices from happening.

So what were the key changes that the FCA made

Rate Capping was a significant change affecting the cost of these loans. Rates were capped at no more than 0.8% per day, and any additional fees and charges had to be included in this figure. They also capped the default charges to a maximum of £15 per loan. Finally the dictated that no loan could ever cost more in interest and fees than the loan itself, so borrowing £100 would never require payments over £200.

Loans could only be rolled over twice and then only after proper affordability assessment. After this the loan had to be repaid, with appropriate forbearance being shown where this was not possible.

Continuous Payment Authority was restricted to 2 attempts. This stopped lenders from dipping into a customers bank account up to 30 times per month to try and intercept any incoming funds.

Warnings were required on all financial promotions detailing the detriment of non payments. This was in addition to the Representative APR being shown when certain things triggered it such as a statement payday loans for bad credit.

One of the biggest things the FCA did was place affordability (which had always been in the regulations but had been poorly enforced) at the top of the lenders list of priorities. Lenders MUST assess whether the customer can afford the loan and only lend when this has been confirmed.

The FCA have also placed restrictions on Credit Brokers to force them to be more transparent with the customer however this article will not focus on this area of consumer credit.

Some key definitions:

High Cost Short Term Credit - Loans where the APR exceeds 100% and the term is less than 12 months

A Rollover - A single installment loan where only the interest (and maybe a small amount of capital) is repaid and the balance is paid by the customer taking a new credit agreement with the same lender.

Continuous Payment Authority (CPA) is where the debit card is used by the lender to collect the loan repayments but the borrower gives an open ended permission rather than giving individual consent for each payment.

Surely, the growth now has been curbed with the industry’s functions getting regulated by financial regulatory bodies. The interest rates have come under strict regulations, along with the number of times that a loan can be rolled over. Is this is pointing towards the slow death of the payday industry? We think not. We think that this is the rebirth of the industry for those lenders who want to offer compliant products in a responsible way. The only people who will die are those that do not want to change their ways. This is evident as a number of payday loan lenders have been seeing leaving the payday industry.